Marks & Spencer was among the day's fallers as analysts pointed to the threat of growing competition, in particular from mid-market rival John Lewis.

Following plans by the John Lewis-owned Waitrose supermarket to roll out a network of smaller shops within the M25, the group also intends to expand its department store chain with a new flexible format. In a sell note ING analyst John David Roeg said:

We expect that [the Waitrose] developments will be slightly negative for direct competitor Marks & Spencer. The strengthening of the John Lewis brand and the wider presence of Waitrose within the M25 could have a more serious impact on M&S over the longer term.

With analysts at Redburn also downgrading M&S, the company's shares closed 5p lower at 356.1p.

Still with retailers, Halfords lost 13.5p to 337p after negative notes from Peel Hunt and JP Morgan, while Dixons Retail dropped 0.99p to 15.2p as UBS cut its recommendation from buy to neutral. Home Retail Group fell 5.7p to 135.3p as the same bank reduced its target price from 190p to 140p. But UBS raised its target for Burberry, 22p better at £16, from £12.55 to £15.50.

Overall, investors continued to tread warily as Moody's cut its credit rating for Greece, while America's attempts to raise its debt ceiling and avoid a default continued to flounder amid political disharmony. After falling as low as 5892, the FTSE 100 finished 9.76 points lower at 5925.26, avoiding the Armageddon some had predicted. Angus Campbell, head of sales at Capital Spreads, said:

Even though there are concerns about a US default on its debt repayments the markets seem convinced that a resolution will be agreed before the August deadline. This is the biggest hurdle faced by financial markets at the moment and until common ground is found we can expect volatility to remain highs and gains to be hard to come by.

Banks led the way lower on worries about their exposure to European debt if Greek defaults despite last week's debt agreement. Barclays dropped 10.65p to 228.95p, Lloyds Banking Group lost 2.025p to 45.1p and Royal Bank of Scotland closed 0.58p lower at 36.28p.

But with gold and silver hitting new highs as investors sought safe havens, mining group Fresnillo finished 48p higher at £17.29 and Randgold Resources rose 30p to £56.25p.

Defensive stocks were also in favour, with GlaxoSmithKline up 22.5p at 1365.5p, helped by a positive note from Bank of America Merrill Lynch.

BP added 5.05p to 475.4p as it was awarded two deepwater blocks in the Caribbean. Meanwhile HSBC analyst Paul Spedding added his voice to those calling for a break-up of the oil business. He said:

We believe that BP has now incurred roughly half of the potential costs likely to be associated with the Macondo spill and needs to begin to articulate its post-Macondo strategy. We see ConocoPhillips' shrink-to-grow strategy as a good example of how shareholder value can be added.

BP should pursue a [similar] strategy by disposing of mature assets (such as Alaska) and some of its US deepwater exposure. It should also seek to release cash from its investment in TNK-BP Holding. The proceeds should be returned to shareholders via a buyback programme. Given the undervalued nature of BP's shares, we believe this could add up to 160p of value.

Our target price is 600p, rating overweight, but adoption of such a strategy could make our 840p sum of the parts valuation more relevant.

Elsewhere, Wolseley rose 9p to £19.15 as it sold its Build Center business and its Brochette operation in France to Saint-Gobain for £310m. Charlie Campbell at Liberum Capital said:

This is a good price given than businesses were making a combined 1% margin - the proceeds are a little lower than I would have expected but profitability of businesses is worse; on balance good to get this done.

Aegis added 3.2p to 160p as bid speculation swirled around the marketing group. It is in the process of selling its Synovate market research business, which traders believe could leave it vulnerable to a bid. French billionaire Vincent Bollore, who owns 26%, could be one buyer, but other bidders are believed to be interested. A possible price of around 225p a share was mentioned.

As for real bids, Holidaybreak, which specialises in adventure travel and school trips through its PGL brand, jumped 15% to 367p after revealing it was in takeover talks.

Rivals Tui Travel and Cox & Kings or a private equity group were tipped as potential buyers. Analyst Greg Feehely at Altium Securities said any successful offer would have to be pitched at 400p a share at least, valuing the business at around £280m.

Finally consumer electronics group Armour slumped 40% to 2.375p after it reduced its expectations for the full year and agreed a £1.2m loan with Hawk Investment Holdings, a vehicle controlled by Armour chairman and entrepreneur Bob Morton.